A Study On Fiscal Decentralization And The Supply Of Local Public Goods

This paper uses the theory that fiscal decentralization may affect public goods supply as the theoretical foundation, and the whole paper is in the context of China's economic structural transformation. Then I find that fiscal decentralization lead to competition between local governments and thus affect the effective supply of public goods, and I use this idea as the main line and the starting point. I analysis 13 years Inter-provincial panel data about the supply of public goods, use the quantitative economic analysis as the main method. From all these, I get the following conclusions: The degree of fiscal decentralization in some areas is negatively correlated with the supply of public goods. That means with the increasing degree of decentralization where the supply of public goods is reduced. These places are mainly in the "Yangtze River Delta economic region." This mainly because these local governments are busy with inter-governmental fiscal competition. In addition, this article also analysis Fujian Province's public goods supplies, and discovered that the supply of public goods in Fujian Province is far from the goals which proposed in"Western Shore Economic Zone". To coordinate the economical development and livelihood of the people, the Fujian local government needs to do much more improvements from different areas.Basis on this analysis, the article pointed out the reasons for the current insufficient supply of public goods, this mainly because of our fiscal decentralization is "Chinese style" of fiscal decentralization. That means the he coexistence of economic decentralization and political centralization. The drawbacks of this system makes, on the one hand, China's local governments play a huge supply of public goods task, on the other hand, there is no corresponding right to the income. Such rights and obligations are not unequal must lead to the local government reducing the supply of public goods. In addition, local officials'assessment system in China is based on GDP; officials'promotion is largely depended on the size and rate of GDP. The appointment and removal of local officials is decided by higher-level government, rather than the local people. This allows local officials in accordance with the direction of incentive to arrange the financial expenditures, and ignore the supply of public goods. The article finally proposes effective ways to improve the supply of public goods, includes the establishment of a sound financial system, the change of the existing assessment mechanisms, the enlargement of the surveillance in the supply of public goods and the reasonable disposition of public resource.